26-04-2014, 01:57 AM
NY Times, April 21 2014
Ukrainian Gas Broker Faces Scrutiny
By ANDREW E. KRAMER
MOSCOW Gas pricing wars between Russia and Ukraine, like the one
breaking out now, have generally ended badly for the two countries and
Gazprom, the Russian energy monopoly.
But not for Dmytro Firtash, a Ukrainian businessman who made a career
and a fortune as a middleman in this troubled energy trade. For more
than five years, Gazprom sold Mr. Firtash fuel at reduced prices. He
resold it to the Ukrainian state energy company, Naftogaz, and other
clients in Ukraine at a markup, making billions of dollars along the way.
Throughout the former Soviet Union and Eastern Europe, such gas
middlemen, who arrange big-ticket deals between suppliers and buyers,
have been essential to the region's energy dealings, as well as its
politics. An open question after the change of leadership in Ukraine
this year is whether a new gas middleman will play a role in the current
pricing dispute.
In the past, players like Mr. Firtash have helped broker solutions.
Worried about higher energy prices, European governments were willing to
accept murky arrangements with the middlemen to assure a steady flow of
natural gas.
This was the case in 2006, when Gazprom and the post-Orange Revolution
government in Ukraine failed to agree on a price, but did finally hash
out a deal to trade through a mystery intermediary. The identity of the
trader was such a secret that Gazprom did not release his name for
months after signing the contract, eventually doing so through an
anonymous leak in a newspaper the energy company owns, Izvestia. It was
Mr. Firtash and a minority partner, Ivan Fursin.
An energy crisis in Ukraine now seems imminent, analysts say. In an
analytical note published recently, the policy research group IHS wrote
of the two sides' intransigence: "A new gas war between Russia and
Ukraine could spark an actual war."
But this time around, the middlemen may not have the same political
capital to work out a deal. In the months after the Ukrainian
revolution, such players have come under increased scrutiny for their
business and political activities.
One 27-year-old gasoline trader in Ukraine was wholly unknown to his
countrymen before the Ukrainian edition of the magazine Forbes wrote
about him. Stung by the criticism, the young billionaire, Serhiy
Kurchenko, bought the publication last summer, then hired a new editor.
Mr. Kurchenko is now wanted in Ukraine for evading customs duties, his
whereabouts unknown.
In addition to buying Ukrainian media to try to control criticism, the
middlemen have also spread their businesses abroad. One former gas
middleman and the prime minister of Ukraine in the mid-1990s, Pavlo
Lazarenko, bought the actor Eddie Murphy's Southern California home for
$6 million. He later served several years in an American prison for
money laundering.
Two court cases in the United States, one criminal and one civil, shed
new light on Mr. Firtash's operations and the role of the gas
middleman, not only in Eastern Europe but around the world.
In a civil court case in the United States District Court for the
Southern District of New York, lawyers have argued that Mr. Firtash
funneled profits from the Gazprom deal into supporting pro-Russian
politicians in Ukraine.
The lawsuit against Mr. Firtash and RosUkrEnergo, a gas-trading company
he co-owned with Gazprom, was filed in 2011 under United States
racketeering laws and the Alien Torts Statute by Yulia Tymoshenko, a
former Ukrainian prime minister and presidential candidate. It claims
that Mr. Firtash first laundered a portion of the Gazprom funds through
Manhattan real estate deals that also benefited an American political
adviser of the former president, Viktor F. Yanukovych. Lawyers recently
asked for additional time in the case to collect as evidence documents
discovered in the Ukrainian presidential residence after the revolution.
In the criminal court case, federal prosecutors in Chicago recently
unsealed an indictment accusing Mr. Firtash of bribing government
officials in India after transferring money through American banks. Mr.
Firtash was detained in Austria on those charges and is awaiting an
extradition ruling.
Mr. Firtash has denied wrongdoing in both cases.
A lawyer involved in Mr. Firtash's defense said that the businessman
"categorically denies the allegations in the indictment and questions
why the U.S. government went through so many years and so much tax money
pursuing a case involving an Indian mine, Indian officials and a
Ukrainian businessman."
Of the case filed by Ms. Tymoshenko, the lawyer said, "Anybody who
regards this case as serious needs to look at the history of frivolous
RICO claims filed in New York and what has happened to them."
Energy analysts and minority investors in Gazprom have long criticized
the company for allowing middlemen to siphon off profits. Mr. Firtash,
for example, had been buying about eight billion cubic meters of
Gazprom's gas a year at a price $95 to $105 lower per 1,000 cubic
meters than what Gazprom charged the state energy company, Naftogaz,
costing Gazprom about $800 million annually. Gazprom has said its
pricing policies are purely commercial.
"Gazprom needs a middleman like a hole in the head," said Ken McCallion,
a lawyer with McCallion & Associates, a law firm representing Ms.
Tymoshenko and other Ukrainian political opposition figures in the
lawsuit. Ms. Tymoshenko, whose nickname is "the Gas Princess," would
know: Before entering politics, she was chief executive of a gas trading
company, United Energy Systems of Ukraine.
"The middleman was there for one purpose, to grab some money and grease
the operation of this political-industrial machine," Mr. McCallion said.
Jonathan Stern, an authority on the European natural gas market at the
Oxford Institute for Energy Studies, said Ukraine's gas middlemen,
whatever their role in politics, also helped Gazprom provide flexible
pricing to Ukraine's industrial gas customers, some of which would have
been compelled to close factories if charged the full rate. In a letter
to European leaders released this month, President Vladimir V. Putin of
Russia noted that such discounts to Ukraine's chemical industry most
likely kept factories open and workers employed.
The New York lawsuit makes clear they also allowed a profit for Mr.
Firtash. It traces his funneling money from Ukrainian gas deals to a New
York real estate fund established with the help of Paul J. Manafort, a
Republican political operative who advised Mr. Yanukovych on his 2010
campaign in Ukraine.
In 2008, Mr. Firtash's investment fund struck a deal to buy the former
Drake Hotel on Park Avenue for $885 million, according to documents
filed in the lawsuit. The fund planned to reopen it as a mixed-use
retail and residential building to be called Bulgari Tower, named for
the luxury goods brand.
Mr. Firtash and Mr. Manafort, who was a principal at the lobbying firm
Davis Manafort Partners, solicited investors for the building deal. But
the deal fell apart before it closed. Another senior partner at the
firm, Rick Davis, was on leave while serving as campaign manager for
Senator John McCain's 2008 presidential race.
Despite numerous efforts, neither Mr. Manafort nor Mr. Davis could be
reached for comment.
The criminal indictment in Chicago became public after Mr. Firtash was
detained in Vienna on March 12 at the request of the Federal Bureau of
Investigation.
The indictment accuses Mr. Firtash and associates of bribing officials
in the Indian state of Andhra Pradesh to secure rights to mine titanium
they planned to sell to Boeing. Boeing quickly broke off the deal and is
not accused of any wrongdoing. Mr. Firtash wired about $18.5 million in
bribes to Indian officials, some of it through American banks, court
documents contend.
Mr. Firtash said, through a spokesman, that the case relates to an
eight-year-old deal in India and reflects political spite, as it came so
soon after the change of government in Kiev. Mr. Firtash's lawyer,
Dieter Böhmdorfer, the former Austrian justice minister, couldn't be
reached for comment.
"The philosophers have only interpreted the world, in various ways. The point, however, is to change it." Karl Marx
"He would, wouldn't he?" Mandy Rice-Davies. When asked in court whether she knew that Lord Astor had denied having sex with her.
“I think it would be a good idea” Ghandi, when asked about Western Civilisation.
"He would, wouldn't he?" Mandy Rice-Davies. When asked in court whether she knew that Lord Astor had denied having sex with her.
“I think it would be a good idea” Ghandi, when asked about Western Civilisation.